IGI Securities Limited – Commodity News

Karachi, December 19, 2017 (PPI-OT): Crude Oil

Technical

The WTI Crude Oil market initially tried to rally on Monday, breaking above the $57.50 level, but then rolled over to break down through that area, to reach the $57 level. I think that this market is looking likely to go lower, as we have certainly seen a significant shift in attitude during the day on Monday. At this point, I think that short-term rallies will be selling opportunities, as the market looks likely to look towards the $56 level underneath. If we were to break above the highs of the day on Monday, that would be an extraordinarily bullish sign, but as I record this looks very unlikely to happen. Crude oil markets continue to be very noisy, and with the lack of volume over the next couple of weeks, they could be a very dangerous way to trade. By using small positions, it’s probably a much safer market to be part of. Brent markets went over and reached through the $63 level during the day.

Highlights

Oil futures ended slightly lower yesterday, failing to hang on to early gains

Nigerian oil workers agreed to suspend a strike yesterday

West Texas Intermediate crude for January delivery on the New York Mercantile Exchange fell to end at $57.16 a barrel

Nigerian oil workers agreed to reopen talks with management next week

The EIA said it expected U.S. production to hit a record 10.02 million bpd in 2018, on par with Saudi Arabia

Fundamentals

Oil markets edged up today as the Forties pipeline outage in the North Sea and voluntary production restraint led by OPEC supported prices, although soaring output in the United States put a cap on gains.

U.S West Texas Intermediate (WTI) crude futures were at $57.35 a barrel, up 19 cents, or 0.3 percent, from their last settlement. International Brent crude futures were at $63.56 a barrel, up 15 cents.

There has been little price movement in recent trading, with Brent moving within a $63.00 to $63.91 per barrel range since last Friday. Some upward pressure was taken off after an oil worker strike was called off in Nigeria.

Despite this, crude has been generally supported by the ongoing Forties pipeline system outage in the North Sea, which provides crude underpinning Brent futures.

The Forties pipeline closure will continue to put a floor under Brent crude. Further price support has been coming from voluntary supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and a group of non-OPEC producers including Russia.

The cuts were introduced in January and are currently set cover all of next year, but Russia’s Rosneft said on Monday they could be extended beyond 2018. U.S. shale production alone is expected to rise by 94,000 bpd in January, marking a 13th consecutive month of increases, the U.S Energy Information Administration said late yesterday.

OECD industry inventories declined by 40 million barrels in October to 2.92 billion barrels, while global inventories decreased by 61 million barrels to 5,48 billion barrels. This clearly indicates that the market in 4Q17 is in material (1 million barrels per day) supply deficit.

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